consolidated financial results - his · 2018. 10. 3. · consolidated financial results for the...

Consolidated Financial Results For the Fiscal Year Ended October 31, 2008

This document has been translated from the original Japanese as a guide for non-Japanese investors. It contains forward-lookingstatements based on a number of assumptions and beliefs made by management in light of information currently available.Actual financial results may differ materially depending on a number of factors, including changing economic conditions,legislative and regulatory developments, delay in new product launches, and pricing and product initiatives of competitors.

Consolidated Financial Results for the Fiscal Year Ended October 31, 2008

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Summary of Consolidated Financial Results For the Fiscal Year Ended October 31, 2008

H.I.S. Co., Ltd. (9603)

Exchange Listed: Tokyo Stock Exchange, 1st section

Principal Office: Tokyo, Japan

Homepage: http://www.his.co.jp

Representative Director, President: Akira Hirabayashi

Contact: Narimoto Kusuhara Managing Director

Telephone: +81-3-5908-2070

Date of Dividend Payment: January 30, 2009

Scheduled date of filing annual report: January 30, 2009

1. Consolidated Financial Results (November 1, 2007 – October 31, 2008) (1) Consolidated Operating Results

Millions of Yen Fiscal Year Ended October 31,

2008 % 2007 %

Net Sales ..................................................................... 368,384 1.7 362,084 10.1

Operating Income ........................................................ 5,902 (7.2) 6,362 (12.1)

Ordinary Income .......................................................... 6,204 (17.4) 7,510 (7.1)

Net Income ................................................................. 2,487 (45.0) 4,521 (7.1)

Net Income per Share (yen)......................................... 75.91 135.57

Net Income per Share, Diluted (yen)............................ －－

Return on Equity (ROE) ............................................... 5.4% 9.9%

Ordinary Income to Total Assets Ratio ......................... 6.1% 7.8%

Operating Income to Net Sales Ratio........................... 1.6% 1.7% Notes: Equity of earnings in affiliates: Full year ended October 31, 2008 313 million yen Full year ended October 31, 2007 339 million yen

(2) Consolidated Financial Position

Millions of Yen As of October 31, 2008 2007

Total Assets ............................................................................ 103,746 100,992

Net Assets .............................................................................. 45,210 48,379

Shareholders’ Equity Ratio ..................................................... 43.2% 47.5%

Net Assets per Share (yen) .................................................... 1,381.81 1,450.67 Notes: Shareholders’ equity (consolidated): As of October 31, 2008: 44,810 million yen As of October 31, 2007: 47,968 million yen

http://www.his.co.jp/


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(3) Consolidated Cash Flows

Millions of Yen Fiscal Year Ended October 31, 2008 2007

Cash Flows from Operating Activities ..................................... 5,392 5,148

Cash Flows from Investing Activities ...................................... (11,035) (1,793)

Cash Flows from Financing Activities ..................................... (1,636) (1,405)

Cash and Cash Equivalents at End of Year .............................. 31,080 38,995

2. Dividend Distribution

Dividend per share

Half Year Year End Full Year Total Dividend

(millions of yen)

Dividend payout ratio (%) (consolidated)

Ratio of dividends to net assets (%)

(consolidated)

FY2007 － 20.00 20.00 661 14.8 1.4

FY2008 － 24.00 24.00 778 31.6 1.7

FY2009 (Forecast) － 24.00 24.00 － 25.9 －

3. Consolidated Forecast for the Fiscal Year Ending October 31, 2009

Millions of Yen Interim ended April 30, 2009 FY ended October 31, 2009

Net Sales ....................................................................... 177,000 2.1% 383,000 4.0%

Operating income........................................................... 3,000 17.7% 7,300 23.7%

Ordinary Income............................................................. 1,700 (37.5%) 5,200 (16.2%)

Net Income..................................................................... 1,000 (37.5%) 3,000 20.6%

Net Income per Share (Yen) ......................................... 30.84 92.51

4. Additional Notes (1) Changes of important subsidiaries during the fiscal period (Changes of specific subsidiary due to change in scope of

consolidation): None

New: No Companies

Excluded: No Companies

(2) Changes in principles, procedures and presentation of accounting treatment in preparing consolidated financial

statements: (i) Changes resulting from revisions to accounting standards, etc.: No

(ii) Changes other than (i): Yes

(3) Number of shares issued (common shares)

(i) Number of shares issued end of fiscal period (including treasury stock):

As of October 31, 2008 34,261,468 shares


(ii) Number of treasury stock at end of fiscal period




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5. Non-consolidated Financial Results (November 1, 2007 – October 31, 2008) (1) Non-consolidated Operating Results

Millions of Yen Fiscal Year Ended October 31,

2008 % 2007 %

Net sales................................................................. 325,428 2.5 317,546 9.9

Operating Income ................................................... 4,169 (11.5) 4,709 (17.9)

Ordinary Income ..................................................... 4,130 (23.0) 5,366 (14.0)

Net Income ............................................................ (930) -- 3,179 (13.2)

Net Income per Share (yen).................................... (28.41) 95.33

Net Income per Share, Diluted (yen)....................... -- --

(2) Non-consolidated Financial Position

Millions of Yen As of October 31, 2008 2007

Total Assets........................................................................... 90,762 89,117

Net Assets............................................................................. 37,156 42,877

Shareholders’ Equity Ratio ................................................... 40.9% 48.1%

Net Assets per Share (yen)................................................... 1,145.77 1,296.70

Note: Shareholders’ equity: Fiscal year ended October 31, 2008: 37,156 million yen Fiscal year ended October 31, 2007: 42,877 million yen (3) Non-consolidated Operating Forecasts for the Fiscal Year Ending October 31, 2009

Millions of Yen Interim ended April 30, 2009 FY ended October 31, 2009

Net Sales ....................................................................... 162,900 9.4% 357,900 10.0%

Operating income........................................................... 1,600 30.9% 5,200 24.7%

Ordinary Income............................................................. 50 (95.9%) 3,000 (27.4%)

Net Income..................................................................... (250) -- 1,500 --

Net Income per Share (Yen) ......................................... (7.71) 46.25 Note: Forecasts contain forward-looking statements based on a number of assumptions and beliefs made by management in light of information currently available. Actual financial results may differ materially depending on a number of factors. Please consult page 5 for further information concerning the projections.


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I. Operating Results and Financial Position

1. Operating Results (1) Overview of consolidated results for the fiscal period As corporate earnings declined, Japanese economic growth slowed with both capital expenditures and

personal consumption stagnating. The downward trend in overseas travel continued for various reasons

including the impact of a series of hikes in fuel surcharges, the deterioration in economic conditions, and a

decline in the number of travelers to China, which has been the engine for market growth, following concerns

about food safety and the large earthquake in Sichuan.

According to the Japan National Tourist Organization (JNTO), the (estimated) number of Japanese departing

the country from November 2007 through October 2008 is expected to have fallen by 6.2% on the previous

year to around 16,288,000 people, a decrease of approximately 1,084,000 people.

Under these conditions, the Group's Travel Business was reorganized under the leadership of a new president

in order to maintain the support of customers and growth at a time of turbulent changes both within Japan and

overseas. Under the new system and centered on the "Quality Control & Market Research Room," a newly

created department, the Group strove to develop new products and to provide information to satisfy customers

and further improved quality management of travel products. In addition to expanding the breadth of its travel

product lineup, the Group has expanded its support system at travel destinations, centered on overseas offices,

and strengthened its individual customer service in order to recommend the most appropriate trips that meet

the needs of customers.

· In terms of the development of new travel products, we structured products so that the full price including

fuel surcharges is given in response to customers' opinion that it was difficult to determine the true cost of

tickets, and this was very popular among customers. In addition, the new product Jimo Travel, which

incorporates locally popular items and the recommendations and preferences of local staff that work in

overseas offices directly operated by H.I.S., went on sale.

· We aggressively undertook sales promotions, with efforts including campaigns emphasizing price

appeal, such as the customary "First Dream Fair" at the beginning of the year, and the Weekend Overseas

Vacation Specials for weekends. Furthermore, we made aggressive efforts to attract new customers, and

these efforts included the Super Summer Sale, which was undertaken to stimulate travel during summer,

and the 16-office Simultaneous Opening Fair, which commemorated surpassing 250 offices throughout

Japan, after the Golden Week Vacation.

· In sales by internet, we strove to meet diverse customer needs and improve customer convenience by

launching a new online reservation site for departures from the New Chitose Airport and the Sendai Airport

and for overseas car rentals, in addition to updating the overseas airline ticket internet site and mobile site.


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· As for efforts related to corporate travel, H.I.S. has actively opened offices not only in major metropolitan

areas but also in regional areas that are expected to experience growth in demand. In addition, earnings

for this segment were firm as clients reviewed business trip expenses during the economic recession and

the Group won new contracts with companies.

· As for overseas development, efforts were made based on an awareness of the importance of improving

profitability, which includes raising the level of service at local offices and improving purchasing of hotel

rooms. Furthermore, the Group worked to become more global opening six new overseas offices in cities

such as Dubai, Amsterdam, and Seattle and developing new tourism areas and new products.

As a result of implementing all of these measures, the Group was able to raise its share of passengers and

record an increase in net sales from the travel business of 1.7% to 365,893 million yen even though the effect

of a decline in total demand was still being felt. While not being able to meet initial sales projections had a

dramatic effect, the Group made aggressive efforts to improve profitability based on an awareness of the

importance of improving operational efficiency and effectiveness, including strengthening the purchasing

system and reducing costs, and recorded a decline of 2.6% in operating income to 8,520 million yen.

In the Hotel Business, demand from both Australia and Asia was firm for hotels, and occupancy rates for hotels

on the Gold Coast and in Brisbane continued to be high. In addition, supplemental services, like spa, made

substantial contributions to earnings. As a result, Hotel Business sales firmly increased 14.6% on the previous

year to 2,525 million yen and operating income firmly increased 1.0% to 238 million yen.

As a result of the foregoing, consolidated net sales for the fiscal year improved 1.7% to 368,384 million, while

operating income decreased 7.2% to 5,902 million, and ordinary income decreased 17.4% to 6,204 million.

Furthermore, net income fell 45% to 2,487 million yen since the Group recorded 2,933 million yen in

extraordinary losses on investment securities as the market price of held securities declined.

(2) Forecasts for next fiscal year As for the economic outlook, the Japanese economy is projected to remain stagnant with the global economy

slowing. Even within the travel industry, demand for overseas travel is expected to be weaker as a result of

declining consumer spending and worsening economic conditions.

Under these conditions, among seniors, focus is expected to be on travel to Europe as a result of expected

cuts in fuel surcharges and the merits of recent exchange rate movements. For young people and families who

are sensitive to prices, focus is expected to be on relatively close beach areas and Asia. The Group continues

to consider its core competence as "independent travel" and is aiming to improve the quality of its products in

order to stimulate demand for overseas travel. Efforts are also being made to improve the service and

consulting capabilities of each employee in order to satisfy customers with the best travel plans and to

differentiate H.I.S. from its rivals. In addition, the Group is constructing and expanding its sales channels,

which was undertaken to improve customer convenience at offices, through call center, and online.


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· As for sales of airline tickets, the Group is pursuing both price advantage in terms of airline tickets and its

original added value services such as its capacity to arrange travel and overseas support system. The

Group is differentiating itself from its rivals by expanding its online reservation site to include not only

airline tickets and hotels but also rental cars and optional tours.

· As for package tours, the Group not only introduced it's main product Ciao which is appealing in terms of

price but also broadened its lineup of high-value added products such as tour plans that include high class

hotels and those full of activities. Furthermore, the Group expanded its planned products with clear

customer targets and strove to meet customer needs and increase spending per customer. The Group

expanded its independently developed products of tours with guides, which were mainly created for

Europe, increased the brand recognition of Impresso among the wealthy and seniors, for the number of

whom travel will increase, and strengthen efforts to attract customers.

· In regards to online sales, the Group will strengthen the business as an important sales and marketing

channel. While increasing the number of products that can be used with online and mobile services, the

Group will create a product distribution network. The Group also constructed a new sales website for

travel-related material such as hotels, car rentals, and optional tours, and worked to increase convenience

in order to raise the added value of the whole website.

· As for corporate travel, the Group accelerated its expansion to not only major metropolitan areas but also

local areas that are projected to experience growth in business demand. Appeals are being based on the

price advantage and the airline ticket delivery capabilities that H.I.S has built up, and the Group is working

to develop new customers.

· In terms of overseas development, the Group continues to move forward with developing its global

network. Moreover, the Group is improving the purchasing functions for items such as hotel rooms and

services for customers from Japan, and is taking active steps on various fronts, including developing new

tourist areas and products. Preparations have also been launched, particularly in Asia, to provide

non-Japanese customers with travel services for trips that depart locally. In the future, the Group will

actively develop travel services that make use of overseas offices and is moving forward with preparations

to become a global travel company.

· Zero commissions, the official listing of prices by airlines which has been promoted the most in Europe,

will be fully introduced into Japan starting in April 2009. Even though H.I.S. receives commissions related

to arranging trips from the customer, the Group is challenging to provide even better services and shift to a

new business model.

Within the hotel business, in addition to two hotels in Australia (Brisbane and the Gold Coast), the Watermark

Hotel Sapporo, the first Watermark Hotel in Japan, was opened in December 2008. The Group is not only

expanding its business foundation but also striving to secure stable earnings by improving the service level.


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2. Financial Position (1) Overview of Assets, Liabilities, and Net Assets Total consolidated assets at the end of the current fiscal year increased by 2,754 million from the end of the

previous fiscal year to 103,746 million yen, due mainly to an increase in cash and deposits, which rose by

2,698 million.

Liabilities rose 5,923 million yen from the end of the previous fiscal year to 58,536 million yen, due mainly to an

increase of 5,768 million yen in foreign exchange contracts.

Net assets decreased by 3,169 million yen as compared with the end of the previous fiscal year to 45,210

million yen, due mainly to a decline of 3,399 million yen in deferred loss on hedges. (2) Overview of Consolidated Cash Flows in the Fiscal Year Ended October 31, 2008 Consolidated cash and cash equivalents as of the end of the current fiscal year declined by 7,915 million yen

from the end of the previous fiscal year to 31,080 million yen. Cash inflow from operating activities was 5,392

million yen, cash outflow from investment activities was 11,035 million yen, and cash outflow from financing

activities was 1,636 million yen.

The specifics for each category of cash flow for the consolidated fiscal year are as follows: Cash flow from operating activities Cash inflow provided by operating activities for the current fiscal year was 5,392 million yen. The primary

factors were the booking of 2,600 million in net income before taxes, the increase of pre-trip deposits (an inflow

of 945 million), and the decrease of 719 million in receivables.

Cash inflow provided by operating activities for the previous fiscal year was 5,148 million. The primary factors

behind the increase were the booking of 7,507 million in net income before taxes and the increase of 1,883

million in pre-trip deposits. The primary factor behind the decrease was 4,087 million in payment of income

taxes.

Cash inflow from operating activities for the current consolidated fiscal year therefore rose by 243 million yen

year-on-year compared with the previous fiscal year.

Cash flow from investing activities Cash outflow from investment activities for the current fiscal year was 11,035 million yen. The main reason for

cash inflow were the redemption of 3,644 million yen worth of term deposits, and proceed from the redemption

of 2,931 million yen worth of marketable securities and investment securities. The main reasons for cash

outflow were term deposits (an outflow of 13,354 million yen) and acquisitions of marketable securities and

investment securities (an outflow of 3,738 million yen in total).


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Cash outflow for investment activities for the previous fiscal year was 1,793 million yen. This was due to fact

that expenditures such as those for the purchase of marketable securities and investments in securities (-3,389

million yen) and the purchase of the tangible and intangible fixed assets (-1,109 million yen) surpassed the

proceeds from the redemption of marketable securities and investment in securities (+3,100 million yen).

Cash inflow from investment activities for the current consolidated fiscal year therefore fell by 9,242 million yen

year-on-year, as compared with the previous fiscal year.

Cash flow from financing activities Cash outflow from financing activities for the current fiscal year was 1,636 million, primarily due to purchase of

treasury stock (an outflow of 961 million yen) and the payment of dividends (an outflow of 661 million).

Cash outflow for financing activities for the previous consolidated fiscal year was 1,405 million yen. This

resulted primarily from purchase of treasury stock (an outflow of 705 million yen) and the payment of dividends

for the company (an outflow of 667 million yen).

Cash flow from financing activities for the current consolidated fiscal year therefore improved by 230 million

yen as compared with the previous fiscal year.

Cash flow indices Recent trends in cash flow-related indices are as follows:

FY 10/2008 FY 10/2007 FY 10/2006 FY 10/2005 FY 10/2004

Equity ratio (%) 43.2 47.5 47.3 50.9 43.3

Equity ratio based on market price (%)

43.9 71.5 101.0 102.1 92.1

Debt service coverage (%)

3.9 3.4 2.0 — 2.7

Interest coverage ratio (times)

754.9 577.7 978.9 — 1,235.6

Notes: A) Equity ratio = Total shareholders' equity / Total assets B) Equity ratio based on market price = Market capitalization / Total assets C) Debt service coverage = Interest-bearing debt / Operating cash flow D) Interest coverage ratio = Operating cash flow / Interest paid

* All indices are calculated from consolidated financial results figures. * Market capitalization = Market price on last trading day of specified period × total shares outstanding at end of

period (excluding treasury stock) * Interest-bearing debt is the interest-bearing portion of liabilities recorded on the consolidated balance sheet. * Operating cash flow and Interest paid are from the respective parts of the consolidated statements of cash flows. * Debt service coverage and the interest coverage ratio are not recorded for the end of the fiscal year ending October

31, 2005, as operating cash flow was negative in that period.


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3. Allocation of profits (1) Basic approach to allocation of profits Returning profits to shareholders is one of the Company's key management issues. The H.I.S. Group aims to

maximize Group enterprise value, and at the same time pay stable and continuous dividends based on the

Company's financial performance and taking into account overall factors including global economic and

business trends, the state of the Group and future business development.

(2) Basic approach to dividends Profit sharing with shareholders is based on the concept of sustainable, stable dividends from profits. H.I.S.

has adopted a system of interim dividends, but there is a tendency for a greater share of annual sales to be

recorded in the second half of the fiscal year. Therefore, at the present time, dividends are paid on a yearly

basis in order to realize fair dividends in terms of earnings.

(3) Utilization of internal capital reserves In addition to preparing for sudden changes in the travel industry and competition and reorganization within the

industry and making active investments in the IT business, there is a greater need to respond to unexpected

external factors such as recent terrorism and SARS (sudden acute respiratory syndrome) and sudden

phenomena that the Group's customer encounter. Under these conditions, there is a strong awareness of the

importance of creating a stable financial base that can be realized immediately and there is a desire to keep

internal reserves relatively thick and stabilize the business foundation.

Based on the above basic policy on the distribution of profits, it is expected that H.I.S. will pay an end-of-year

dividend of 24.00 yen per share.

H.I.S. expected to pay a dividend of 24.00 yen per share for the next fiscal year as a sustainable and stable

dividend. However, if performance worsens in uncertain market conditions, the Company will remain flexible in

responding to the situation.

4. Business and Other Types of Risk

The following types of events have the potential to affect the operating results, financial status, the stock price

and other factors for the corporate group. Having recognized the potential for such risks, the Group intends to

make every effort to avoid them and to address them in the event such risks should occur.

The matters pertaining to the future noted in this section were those determined by the Group as of the

announcement date of the financial statement (December 22, 2008). Business and other risks are not limited

to these risks.

(1) Specific Management Policies Adopted by the Company

The travel business comprises 99.3% of group sales by segment; sales by region are also concentrated in


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Japan, at 93.8%. Changes in the environment for the travel business in Japan therefore have the potential to

affect the Group’s financial status, operating results, etc.

(2) External Factors Surrounding the Travel Business

Parent sales, which were affected by an increase in fuel surcharges associated with the sharp rise in crude oil

prices, accounted for 88.3% of group sales, and overseas travel comprised 94.0% of parent sales. The

company is currently adding a fuel surcharge to overseas travel fares to reflect the change in crude oil prices. A

sharp increase in this fuel surcharge could dampen overall demand and adversely affect the financial condition

and business results of the Group.

(3) Share of Travel to Asia Handled Asia comprises the greatest share of the number of overseas travelers from Japan handled by the Group

according to destination, at 58.5% (comprising 41.6% of sales). This percentage is nearly the same as the

number of travelers by destination for Japanese people overall. Operating results could be greatly influenced

by changes in the external environment for the destinations in question (terrorism, infectious diseases, natural

disasters, etc.).

(4) Competition with Other Competitors, Direct Sales by Suppliers

The Group Travel Business is subject to stiff competition from various other competitors or direct sales by

suppliers; Group financial status, operating results, and other factors could be affected if stiffer competition on

prices were to occur.

(5) Reduction in commissions on airline tickets sold at the published fare by airline companies The Group also sells airline tickets at published fares that airline companies provide tickets directly to

consumers. It is possible that in the future commissions on airline tickets paid to travel agencies by airline

companies could be reduced or eliminated. This could affect items such as the financial position and earnings

of the Group.

(6) Fluctuations in the Valuation of Owned Assets such as Securities

The Group holds both listed and unlisted shares and also holds debt and other instruments. Hence, the

Group’s financial status and operating results could be affected by movements in prices for securities

possessing a market value, and by the occurrence of losses on sale and valuation losses for securities without

a market price due to changes in the financial status of companies in which we have invested. (7) Exchange Rate Fluctuations

The Group conducts business in foreign currencies and therefore incurs income and expenses as well as

assets and liabilities in foreign currencies as a result. The Group hedges risk through forward exchange

contracts and other instruments to mitigate the impact of exchange rate fluctuations.

If the yen appreciates beyond the contracted exchange rate, the Group may have to purchase foreign currency

at the contracted exchange rate. As a result, without some of the benefits of an improvement in income due to


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the strengthening of the yen being reflected, the Group's financial position and earnings could be negatively

affected.

The Group also translates the financial statements of consolidated overseas subsidiaries into Japanese Yen

when producing the consolidated financial statements. This could affect the Group’s financial status, operating

results, and other factors should there be fluctuation in exchange rates.

(8) Debt Guarantees, etc. The Group has concluded debt guarantee agreements with vendors regarding payments generated during

operations. It has been determined that there is a very low probability that there will be demands for payment

of the guarantees, but if there were demands for payment, this could negatively impact the financial position

and earnings of the Group. (9) Risk of External Factors Surrounding the Travel Business

- Changes in the world situation such as terrorism, war, and other events

- Occurrence of infectious diseases, etc.

- Damage to the tourism infrastructure resulting from natural disasters

- Global disorder as a result of sudden changes in exchange rates


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II. Current State of the H.I.S. Group H.I.S. Group (H.I.S. Co., Ltd. and its subsidiaries) comprises H.I.S. Co., Ltd., 53 subsidiaries and 9 affiliated companies. The locations and main businesses of the principal subsidiaries are outlined in the following tables, which are organized by the business categories used in segment information. (1) Travel Business H.I.S. Group businesses undertake domestic and overseas travel and related operations in the following regions. Consolidated subsidiaries carry out travel-related business in the various business segments. Subsidiaries (46)

Japan Asia / Oceania

No. 1 Travel Shibuya Co., Ltd.1 H.I.S. Okinawa Co., Ltd. 1 Orion Tour Co., Ltd. 1 Passeport Co., Ltd. (presently dormant) ATB Co., Ltd. 1 Cruise Planet Co., Ltd. 1 H.I.S Experience Japan CO., LTD. 1

H.I.S. (HONG KONG) COMPANY LIMITED1 H.I.S. WESTRALIA PTY LTD.1 H.I.S. AUSTRALIA PTY. LTD.1 H.I.S. KOREA CO., LTD.1 H.I.S. INTERNATIONAL TRAVEL PTE LTD.1 PT. HARUM INDAH SARI TOURS AND TRAVEL1 H.I.S. INTERNATIONAL TOURS KOREA INC. 1 H.I.S. TOURS CO., LTD. 1 MAPTOUR MONGOLIA LLC Japan H.I.S.Tours Pvt Ltd H.I.S. (PHILIPPINES) TRAVEL CORP. H.I.S. MALDIVES TRAVEL PTE LTD H.I.S. TRAVEL (MALAYSIA) SDN BHD HIS (FIJI) LIMITED1 H.I.S. (Cambodia) Travel Co., Ltd. H.I.S. (MACAU) TRAVEL COMPANY LIMITED H.I.S. INTERNATIONAL MANAGEMENT PTE. LTD. H.I.S. Travel (India) Private Limited. HIS Uluslararasi Turizm Seyahat Acentasi Limited Sirketi H.I.S. Travel (U.A.E) L.L.C. H.I.S. (HAINAN) INTERNATIONAL TRAVEL SERVICE CO., LTD.

Americas Europe

H.I.S. U.S.A. Inc. 1 H.I.S. INTERNATIONAL TOURS (NY) INC. 1 H.I.S. TOURS USA, INC. 1 HAWAII HIS CORPORATION1 H.I.S. TOURS (NEVADA) INC. 1 H.I.S. INTERNATIONAL TOURS (CARIBBEAN) LTD. 1 H.I.S. CANADA INC. 1 H.I.S. GUAM, INC. 1 H.I.S. SAIPAN, INC.1 H.I.S. CANCUN S.A. DE C.V. 1

H.I.S. Deutschland Touristik GmbH.1 H.I.S. INTERNATIONAL TOURS FRANCE S.A.R.L.1 H.I.S. EUROPE ITALY S.R.L.1 H.I.S. Travel Switzerland AG H.I.S. EUROPE LIMITED1 VIAJES H.I.S. MADRID S.A. 1 H.I.S. (Austria) Travel GmbH H.I.S. Travel Nederland B.V.i.o.

Affiliated Companies (5)

Japan Asia/ Oceania

NEW WORLD TRAVEL INTERNATIONAL PTY. LTD. H.I.S. TRAVEL (NEW ZEALAND) LIMITED H.I.S. TAIWAN COMPANY LIMITED2 H.I.S.-SONGHAN VIETNAM TOURIST JOINT VENTURE COMPANY LTD.

Americas Europe

H.I.S. INTERNATIONAL TOURS (L.A.), INCORPORATED. 2

Notes: 1. Consolidated subsidiary 2. Equity-method affiliate


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The subsidiary, H.I.S. U.S.A., Inc. is an equity affiliate that holds shares in H.I.S. INTERNATIONAL TOURS (NY) INC.; H.I.S. TOURS USA, INC., HAWAII HIS CORPORATION; H.I.S. GUAM, INC.; H.I.S. SAIPAN, INC.; and H.I.S. INTERNATIONAL TOURS (L.A.), INCORPORATED. This subsidiary is included in the results by segment under the travel business. During the current fiscal year, H.I.S. Experience Japan Co., LTD. became a consolidated subsidiary. H.I.S. (PHILIPPINES) TRAVEL CORP., H.I.S. (HAINAN) INTERNATIONAL TRAVEL SERVICE CO., LTD., and H.I.S. Travel Nederland B.V.i.o., which were established as a subsidiary during the current fiscal year, were excluded from the scope of consolidated and equity method application and is not included in business segment information. (2) Hotel Business The Group operates a hotel business and other ancillary businesses in Australia and other countries. H.I.S. Investments Pty. Ltd. and WHG Investments Brisbane Pty. Ltd. in Australia own hotels on the Gold Coast and in the city of Brisbane; the management of those hotels has been consigned to The Watermark Hotel Group Pty. Ltd. L’Mark Pty. Ltd. provides food service in hotels. SIPADAN WATER VILLAGE AND TOURS SDN. BHD. in Malaysia also engages in the hotel business in Sabah Province. WATERMARK HOTEL JAPAN CO., LTD. is preparing to operate a hotel business and other ancillary businesses. Subsidiaries Affiliated Companies

H.I.S. INVESTMENTS PTY LTD.1

THE WATERMARK HOTEL GROUP PTY LTD.1

WATERMARK HOTEL JAPAN CO., LTD.

H.I.S. AUSTRALIA HOLDINGS PTY LTD.1

WHG Investments Brisbane Pty. Ltd.1

L’ Mark Pty. Ltd.1

SIPADAN WATER VILLAGE AND TOURS SDN BHD.

Note: 1. Consolidated subsidiary

H.I.S. Group subsidiary H.I.S.AUSTRALIA HOLDINGS PTY LTD. is a holding company that owns 100% of the shares of H.I.S.INVESTMENTS PTY LTD., H.I.S.PROPERTIES PTY LTD., THE WATERMARK HOTEL GROUP PTY LTD. and WHG Investments Brisbane Pty. Ltd. The holding company is included in the Hotel business segment.


14

(3) Other Businesses KYUSHU INDUSTRIAL TRANSPORTATION HOLDINGS CO., LTD. operates long-distance and tour bus businesses. East Asia Strategic Holdings Ltd. operates a consulting business. 800th Anniversary of the Mongolian States LLP. is engaged in the planning and management of events. H.I.S. PROPERTIES PTY LTD., which previously sold condominiums on the Gold Coast, ceased operations after selling all the properties it owned. Subsidiaries Affiliated Companies H.I.S. PROPERTIES PTY LTD.

KYUSHU INDUSTRIAL TRANSPORTATION HOLDINGS CO., LTD. 1 EAST ASIA STRATEGIC HOLDINGS LTD. 800th Anniversary of the Mongolian States LLP.

Note: 1. Equity-method affiliate The subsidiary Persona Co., Ltd., and the affiliated company HIS-HS Kyushu Sanko Investment Partnership were dissolved and liquidated during the current fiscal year. During the current consolidated period, a total of 18 subsidiaries and 6 affiliated companies have been excluded from consolidation and from the application of the equity method. This is due to the relative lack of importance of these subsidiaries and affiliates to the Group. The table following illustrates Group operating relationships.


15

H.I.S. C

o. LTD.

Domestic consumers and agencies

Sales of domestic airline tickets etc.

Orion Tour Co., Ltd. (Subsidiary)

Customer support business for foreign tourists

H.I.S. Experience Japan CO., LTD. (Subsidiary)

Sales of overseas airline tickets, hotel booking, etc.

H.I.S. INTERNATIONAL TOURS KOREA INC. (Subsidiary) H.I.S. INTERNATIONAL TOURS (L.A.), INCORPORATED NEW WORLD TRAVEL INTERNATIONAL PTY. LTD. (Affiliates)

Overseas hotel business

H.I.S. AUSTRALIA HOLDINGS PTY LTD. H.I.S. INVESTMENTS PTY LTD. THE WATERMARK HOTEL GROUP PTY LTD. WHG Investments Brisbane Pty. Ltd. L’Mark Pty.Ltd. (Subsidiaries)SIPADAN WATER VILLAGE AND TOURS SDN BHD. (Affiliate)

Sales of overseas airline tickets, hotel booking/ overseas ground coordination

H.I.S. U.S.A. Inc. H.I.S. INTERNATIONAL TOURS (NY) INC. HAWAII HIS CORPORATION H.I.S. CANADA INC. H.I.S. CANCUN S.A. DE C.V. H.I.S. (HONG KONG) COMPANY LIMITED H.I.S. (MACAU) TRAVEL COMPANY LIMITED H.I.S. TOURS CO., LTD. H.I.S. TRAVEL (MALAYSIA) SDN BHD. H.I.S. INTERNATIONAL MANAGEMENT PTE. LTD. H.I.S. INTERNATIONAL TRAVEL PTE LTD. H.I.S. WESTRALIA PTY LTD. H.I.S. AUSTRALIA PTY. LTD. H.I.S. EUROPE LIMITED H.I.S. Deutschland Touristik GmbH. H.I.S. INTERNATIONAL TOURS FRANCE S.A.R.L. VIAJES H.I.S. MADRID S.A. H.I.S. (Austria) Travel GmbH H.I.S. EUROPE ITALY S.R.L H.I.S. Travel Switzerland AG H.I.S. Travel Nederland B.V.i.o. (Subsidiaries)H.I.S. TRAVEL (NEW ZEALAND) LIMITED H.I.S. TAIWAN COMPANY LIMITED (Affiliates)

Overseas ground coordination

H.I.S. TOURS USA, INC. H.I.S. GUAM, INC. H.I.S. SAIPAN, INC. H.I.S. TOURS (NEVADA) INC. H.I.S. INTERNATIONAL TOURS (CARIBBEAN) LTD. H.I.S. KOREA CO., LTD. H.I.S. MALDIVES TRAVEL PTE LTD PT. HARUM INDAH SARI TOURS AND TRAVEL H.I.S. (Cambodia) Travel Co., Ltd. H.I.S. Travel (India) Private Limited. HIS Uluslararasi Turizm Seyahat Acentasi Limited Sirketi MAPTOUR MONGOLIA LLC Japan H.I.S. Tours Ptv Ltd HIS (FIJI) LIMITED H.I.S. Travel (U.A.E) L.L.C. H.I.S. Travel Nederland B.V.i.o. H.I.S. (PHILIPPINES) TRAVEL CORP. H.I.S. (HAINAN) INTERNATIONAL TRAVEL SERVICE CO., LTD

(Subsidiaries) H.I.S. –SONGHAN VIETNAM TOURIST JOINT VENTURE COMPANY LTD. (Affiliate)

Sales of domestic airline tickets and hotel booking

No.1 Travel Shibuya Co., Ltd. H.I.S. Okinawa Co., Ltd. ATB Co., Ltd. Cruise Planet Co., Ltd. (Subsidiaries)

Domestic hotel business

WATERMARK HOTEL JAPAN CO., LTD (Subsidiary)

Consulting

EAST ASIA STRATEGIC HOLDINGS LIMITED (Affiliate)

Sales of airline

tickets, etc.

Sales of airlinetickets,

etc.

Sales of airline

tickets, etc.

Commission

sales of hotel

booking

Sales of airline

tickets, etc.

Customer transportation

Customer transportation

Service providing ofcoordinationfor overseas

ground transportation

Providingdomestic

tours

Lending activity

Operation/Investment

Service providing ofcoordinationfor overseas

ground transportation

Service providing of coordination fordom

estic ground transportation

Sales of airline

tickets, etc.

Others

800th Anniversary of the Mongolian States LLP. (Affiliate)

General ground transportation business

KYUSHU INDUSTRIAL TRANSPORTATION HOLDINGS, CO., LTD. (Affiliate)


16

III. Management Policy (1) Basic management policy Under the corporate concept of "increasing the knowledge of people throughout the world, not being limited by

factors such as nationality, race, culture and religion, and contributing to the promotion of world peace and

mutual understanding through tourism," the Group strives everyday to develop products and provide services

that are trusted by and satisfy customers. While always working to develop the travel business, the Group's

core business, from a customer perspective and giving sufficient consideration to safety and peace of mind,

the Group is working to further improve customer satisfaction, In addition, the Group will do its most to expand

globally so that it can become a travel company that is supported in regions throughout the world.

(2) Management goals and indicators The Group is working to achieve a target that aims for the top position in the number of handling passengers

and sales in the field of traveling abroad to ensure a solid position within the travel industry. The Group is also

actively conducting purchasing, planning, and sales that make use of its global network in order to improve

both growth and profitability. Furthermore, overall operations are being revised, which involves introducing

IT-based systems, improving efficiency, and strengthening the education and training system, and the

efficiency of each employee will be improved.

(3) Medium- to long-term business strategy Through focusing our Group’s business resources on our core travel business, we aim to establish an

advantage in the travel market. Stronger efforts based on an awareness of the importance of greater

productivity and operational efficiency, such as developing new sales channels that actively make use of IT

such as the Internet, will be undertaken. The Group is working to increase convenience of customers and is

aiming to become a travel company that continues to be trusted and supported. Details are provided below.

• Increasing share of overseas travel

We are implementing new policies to capture more of the market for overseas departures from Japan by value

and volume to take the top share of this market. While strengthening the field of individual travel and the youth

market, which are the Group's core competency built up to now, the Group is pursuing greater merits of scale

through the development of new markets that are projected to grow, such as for corporate/group travel and

seniors. In addition, stronger partnerships with suppliers will be built, purchasing will be strengthened, and

dominant sales abilities will be developed.

• Strengthening and expanding Internet business At a time when the importance of the Internet is growing each year, the Group will create a website that is

highly usable from the perspective of customers, will develop products that meet customer needs, and is

aiming to construct the number one website in the industry. While also expanding the product distribution


17

network using online and mobile communications, the Group will work on new possibilities, such as providing

services that meld offices with the Internet.

• Strengthening global expansion The Group is focusing on the continued development of the business in the medium and long term and will

work to expand the travel business in addition to expanding sales, centered on Japan. Efforts will be made to

expand the network of local offices overseas, to further expand the provision of products, and information and

the support system for customers visiting each region, and to differentiate the Group from its rivals. In addition,

the Group will move forward with preparations to provide overseas travel to customers in the local market of

each country, particularly within Asia. Prepared travel that makes use of overseas offices will actively be

developed, and the goal is to transform the company into a global travel company.

Furthermore, the Group will fully enter the market for travel to Japan, which is expected to continue to grow

through the government's Visit Japan campaign. Aiming to construct a new earnings base, the Group will

strengthen its efforts related to travel to Japan provided by domestic sections and subsidiaries.

(4) Key issues For fiscal 2008, the number of Japanese departing from Japan is expected to fall dramatically short of the

figure for the previous fiscal year and stagnate. The situation will likely be affected by various factors including

Japanese economic trends and external factors, and the future is expected to be harsh. Under these

conditions, the following are the major issues related to the travel business that should be dealt with by the

Group.

• Meeting diverse customer needs

The travel needs of customers are becoming more diverse, and there is growing demand for products with a

high degree of freedom and that let travelers travel in their own style. The Group is aiming not only to expand

the breadth of its product lineup but also to realize other goals such as strengthening personal service so that

the most appropriate travel recommendations can be made that meet customer needs and further expanding

support system at overseas destinations.

• The rise of other major travel companies and online agents

There has been a steady increase in other major travel companies and Internet ticket sales through

specialized travel agencies. The Group will ascertain the trends of the industry and rivals and implement

efforts related to business and sales such as developing products and handling customers that always take

into account top speed and is aiming to win a firm share of the market.

• Reinforcing personnel development, education and training The Group recognizes the importance of continually capturing and developing top human resources who are

able to respond to international competition and is working to strengthen its recruiting and training activities. At


18

a time of growing diversity in travel needs and age groups of travelers, it is considered important to improve the

knowledge of staff and the quality of both customer contact and services. The Group considers expanding the

education and training of staff a priority issues and is working to do so.

• Efforts to increase peace of mind, safety, and quality As a travel company, the Group recognizes that striving to improve safety, peace of mind, and quality is the

most important factor to win the support of customers in the future. Active efforts will be made on various fronts

including constructing unique products that take into consideration travel itineraries and examining the safety

of local hotels and tourist sites, and work will be undertaken to provide travel products and information that

continue to be satisfying.

• Corporate Social Responsibility (CSR) Expanding its travel business throughout the world, the Group is aware of its social responsibility, aggressively

promotes activities such as thoroughly implementing compliance, repaying local communities, and preserving

the environment, and is faithfully working to fulfill its social responsibility as a corporation.

(5) Other important matters in company management No other matters.


19

IV. Consolidated Financial Statements 1. Consolidated Balance Sheets

Millions of yen As of October 31, 2008 As of October 31, 2007

ASSETS % % Current assets

Cash and deposits............................................. 43,555 40,856 Notes & accounts receivable ............................. 5,652 4,342 Accrued sales receivable................................... 9,683 11,864 Marketable securities......................................... 1,038 3,106 Deferred tax assets ........................................... 5,684 2,181 Travel deposits .................................................. 10,336 8,586 Pre-paid expenses............................................. 856 835 Short-term loans receivable............................... 45 74 Short-term loans to affiliates .............................. 69 6 Other current assets .......................................... 2,019 1,321 Allowance for doubtful accounts ........................ (29) (14)

Total current assets ................................................ 78,911 76.1 73,160 72.4 Fixed assets

Tangible fixed assets Buildings and structures ...................... 8,218 7,944 Accumulated depreciation ................... (2,620) (2,343) Equipment and fittings......................... 3,469 3,353 Accumulated depreciation ................... (2,675) (2,559) Land .................................................... 1,742 1,743 Other fixed assets .............................. 300 319 Accumulated depreciation ................... (196) (208)

Total tangible fixed assets ............................... 8,238 7.9 8,248 8.2 Intangible fixed assets ............................ 1,487 1.4 1,332 1.3 Investments and other assets

Investments in securities ............................ 4,922 8,677 Shares in affiliates ...................................... 3,131 1,973 Investments in affiliates .............................. 27 32 Long-term loans receivable ........................ 403 455 Long-term loans to affiliates ....................... 1,020 1,167 Long-term prepaid expenses...................... 19 33 Guarantee deposits .................................... 4,549 4,306 Deferred tax assets .................................... 944 968 Other investments and other assets ........... 232 788 Allowance for doubtful accounts ................. (143) (153)

Total investments and other assets ................. 15,109 14.6 18,249 18.1 Total fixed assets............................................. 24,835 23.9 27,831 27.6 Total Assets ................................................... 103,746 100.0 100,992 100.0


20

Millions of yen

As of October 31, 2008 As of October 31, 2007 LIABILITIES % % Current liabilities

Notes & accounts payable................................. 16,362 17,252 Long-term debt to be repaid within one year..... 158 175 Accrued payable................................................ 966 884 Accrued expenses............................................. 1,586 1,504 Accrued income taxes ....................................... 289 1,078 Accrued consumption taxes .............................. 362 485 Pre-trip deposits ................................................ 24,926 24,013 Accrued bonuses............................................... 2,114 1,788 Accrued bonuses for directors........................... 53 32 Short-term accrued interest for travel funds ...... 3 1 Forward exchange contracts ............................. 7,763 1,995 Other current liabilities....................................... 1,916 1,568

Total current liabilities .......................................... 56,504 54.5 50,780 50.3 Long-term liabilities

Long-term debt .................................................. 50 — Deferred tax liabilities ........................................ 3 7 Accrued employees’ retirement benefits............ 1,425 1,274 Accrued directors’ and statutory auditors’

retirement benefits ......................................... 418 390

Long-term accrued interest for travel funds ....... 2 1 Other long-term liabilities................................... 132 157

Total long-term liabilities ...................................... 2,032 1.9 1,832 1.8 Total liabilities.................................................... 58,536 56.4 52,612 52.1

NET ASSETS Shareholders’ Equity Common stock..................................................... 6,882 6.6 6,882 6.8 Capital surplus ..................................................... 7,782 7.5 7,782 7.7 Retained earnings................................................ 34,946 33.7 33,391 33.1 Treasury stock ..................................................... (2,519) (2.4) (1,563) (1.6) Total shareholders’ equity.................................... 47,092 45.4 46,493 46.0 Appraisal and translation differences

Unrealized holding losses on securities ...... (181) (0.2) (405) (0.4) Deferred gain/loss on hedges ..................... (4,582) (4.4) (1,183) (1.2) Translation adjustments.............................. 2,483 2.4 3,063 3.1

Total appraisal and translation differences .......... (2,281) (2.2) 1,475 1.5 Minority interests 399 0.4 410 0.4 Total Net Assets .................................................. 45,210 43.6 48,379 47.9 Total Liabilities and Net Assets........................ 103,746 100.0 100,992 100.0


21

2. Consolidated Statements of Income

Millions of yen

FY ended October 31, 2008 % FY ended

October 31, 2007 %

Net sales .................................................................. 368,384 100.0 362,084 100.0 Cost of sales............................................................. 315,874 85.7 310,647 85.8 Gross profit ............................................................... 52,510 14.3 51,436 14.2 Selling, general and administrative expenses .......... 46,607 12.7 45,074 12.5

Operating income............................................... 5,902 1.6 6,362 1.7 Non-operating income

Interest income....................................................... 824 597 Commission income ............................................... 1 0 Foreign exchange gains ......................................... — 174 Income from equity-accounted affiliates ................. 313 339 Others..................................................................... 203 162

Total non-operating income ............................... 1,343 0.4 1,274 0.4 Non-operating expenses

Interest expense..................................................... 6 8 Foreign exchange losses........................................ 965 — Addition to allowance for bad debt ......................... — 53 Loss on investment in partnership .......................... 4 35 Others..................................................................... 63 28

Total non-operating expenses.............................. 1,041 0.3 126 0.0 Ordinary income .............................................. 6,204 1.7 7,510 2.1 Extraordinary gains

Gain on sale of fixed assets ................................... 5 5 Gain on sale of investment securities ..................... 39 51 Refunded foreign tax .............................................. 12 179 Others..................................................................... 14 17

Total extraordinary gains ................................... 72 0.0 253 0.1 Extraordinary losses

Loss on disposal of fixed assets............................. 53 58 Loss on sale of fixed assets ................................... 2 2 Loss on sale of investment securities ..................... — 2 Loss on valuation of investment securities ............. 2,933 —

Penalty for cancellation……………………………… 19 — Settlement package................................................ — 138 Loss on prior period adjustment ............................. 57 5 Accident-related costs ............................................ 6 — Others..................................................................... 603 49

Total extraordinary losses.................................. 3,676 1.0 257 0.1 Net income before income taxes .............................. 2,600 0.7 7,507 2.1 Income taxes - current........................................................ 1,379 2,905 Income taxes - deferred............................................ (1,309) 41

Subtotal............................................................ 70 0.0 2,947 0.8 Minority interests....................................................... 42 0.0 37 0.0 Net income .............................................................. 2,487 0.7 4,521 1.3


22

3. Consolidated Statements of Changes to Shareholders' Equity

Current fiscal year ended October 31, 2008 (millions of yen)

Shareholders’ Equity Common

stock Capital surplus

Retained earnings

Treasury stock Total shareholders’

equity

Balance as of October 31, 2007 6,882 7,782 33,391 (1,563) 46,493

Changes in the period

Dividends (661) (661)

Net income 2,487 2,487

Increase (decrease) due to increase in number of consolidated subsidiaries

(271) (271)

Acquisition of treasury stock (955) (955)

Sale of treasury stock 0 0 0

Fluctuations other than shareholders’ equity in the period (net)

—

Total change in the period — 0 1,554 (955) 598

Balance as of October 31, 2008 6,882 7,782 34,946 (2,519) 47,092

Appraisal and Translation Differences

Unrealized

holding gains/losses on

securities

Deferral gain/ loss on hedges

Translation adjustments

Total appraisal and translation

differences

Minority interests

Total net assets

Balance as of Oct 31, 2007 (405) (1,183) 3,063 1,475 410 48,379

Changes in the period

Dividends — (661)

Net income — 2,487

Increase (decrease) due to increase in number of consolidated subsidiaries

— (271)

Acquisition of treasury stock — (955)

Sale of treasury stock — 0

Fluctuations other than shareholders’ equity in the period (net)

223 (3,399) (580) (3,756) (11) (3,768)

Total change in the period 223 (3,399) (580) (3,756) (11) (3,169)

Balance as of Oct 31, 2008 (181) (4,582) 2,483 (2,281) 399 45,210


23

4. Consolidated Statements of Cash Flows Millions of yen FY ended

October 31, 2008 FY ended

October 31, 2007 I. Cash flows from operating activities

Net income before income taxes................................................ 2,600 7,507

Depreciation and amortization ................................................... 1,185 1,273

Amortization of goodwill ............................................................. 39 5

Increase in allowance for doubtful accounts .............................. 5 55

Increase (decrease) in accrued bonuses ................................... 331 (78)

Increase (decrease) in accrued bonuses for directors ............... 22 (11)

Increase in accrued employees’ retirement benefits.................. 154 219

Increase (decrease) in accrued directors’ and statutory

auditors’ retirement benefits ..................................................27 (34)

Increase in accrued interest for travel funds.............................. 2 1

Interest and dividend income ..................................................... (886) (673)

Gain on equity-accounted affiliates ............................................ (313) (339)

Loss (gain) from foreign exchange............................................. 1,033 (18)

Interest expense ........................................................................ 6 8

Loss on investment partnership ................................................. 4 35

Gain on sale of investment securities......................................... (39) (51)

Loss on sale of investment securities......................................... 27 2

Appraisal loss on investment securities ..................................... 2,933 —

Gain on sale of tangible fixed assets ......................................... (5) (5)

Loss on sale of tangible fixed assets ......................................... 2 2

Loss on disposal of tangible fixed assets ................................... 52 53

Other losses (gains) ................................................................... 577 197

Increase in accounts receivable................................................. 719 (1,523)

Increase in pre-paid travel deposits ........................................... (1,792) (855)

Increase in other assets ............................................................. (154) (518)

Increase (decrease) in notes and accounts payable.................. (541) 1,145

Decrease in accrued consumption taxes ................................... (120) (33)

Increase in accrued expenses ................................................... 77 59

Increase in pre-travel deposits ................................................... 945 1,883

Other increase in liabilities ......................................................... 223 231

Sub-total ................................................................................. 7,118 8,538 Interest and dividends received ................................................. 718 706 Interest paid ............................................................................... (7) (8) Income taxes paid...................................................................... (2,437) (4,087)

Net cash provided by operating activities ............................. 5,392 5,148


24

Millions of yen

FY ended October 31, 2008

FY ended October 31, 2007

II. Cash flows from investing activities Increase in term deposits ........................................................... (13,354) (3,829)

Decrease in term deposits ......................................................... 3,644 3,658

Purchase of marketable securities ............................................. (1,805) (1,080)

Proceeds from sale of marketable securities ............................. 1,086 0

Proceeds from redemption of marketable securities .................. 2,777 2,400

Purchase of tangible and intangible fixed assets ....................... (1,561) (1,109)

Proceeds from sale of tangible and intangible fixed assets ....... 10 9

Purchase of investment securities ............................................. (1,933) (2,308)

Purchase of shares of affiliates .................................................. (1,105) (236)

Purchase of shares from minority shareholders......................... (2) — Purchase of newly consolidated subsidiaries....................... — (187)

Proceeds from sale of investment securities.............................. 1,291 850 Proceeds from redemption of investment securities .................. 154 700 Proceeds from sale of shares of affiliates and other

investments............................................................................. — 10

Increase in loans receivable....................................................... (396) (2,719) Collection of loans receivable .................................................... 404 2,372 Increase in guarantee deposits .................................................. (719) (856) Collection of guarantee deposits ............................................... 453 571 Decrease (increase) in other investments.................................. 19 (37)

Net cash used in investing activities ................................. (11,035) (1,793) III. Cash flows from financing activities

Increase in short-term borrowings.............................................. 24 24 Repayment of short-term borrowings ......................................... (54) (24) Increase in long-term debt ......................................................... 50 179 Repayment of long-term debt..................................................... (17) (193) Cash dividends paid................................................................... (661) (667) Distribution of dividends to minority shareholders...................... (16) (17) Purchase of treasury stock......................................................... (961) (705) Proceeds from sales of treasury stock ....................................... 0 0

Net cash used in financing activities................................. (1,636) (1,405) IV. Effect of exchange rate changes on cash and cash

equivalents .......................................................................... (645) 530

V. Increase (decrease) in cash and cash equivalents .......... (7,925) 2,480

VI. Cash and cash equivalents at beginning of period ........... 38,995 36,515

VII. Cash and cash equivalents from newly consolidated subsidiaries at beginning of period................................... 9 —

VIII. Cash and cash equivalent at end of period ...................... 31,080 38,995


25

Segment Information 1. Segment Information by Business Current Fiscal Year ended October 31, 2008 (millions of yen)

Travel business(1) Hotel

business(2) Other

businesses(3) Total Eliminations &

Corporate Consolidated

I. Net sales and operating income

Net sales

(1) Sales to outside customers

365,893 2,464 26 368,384 ― 368,384

(2) Inter-segment sales / transfers ― 60 ― 60 (60) ―

Total 365,893 2,525 26 368,445 (60) 368,384

Operating expenses 357,373 2,287 0 359,661 2,820 362,482

Operating income 8,520 238 25 8,784 (2,881) 5,902

II. Assets, depreciation and capital expenditure

Assets 52,943 7,842 251 61,038 42,708 103,746

Depreciation 566 196 0 763 421 1,185

Capital expenditure 856 201 ― 1,058 426 1,484

Notes:

1. Business segments are classified according to those used internally by management.

2. The main business of each segment is as follows: (1) Travel business: Travel business and associated businesses

(2) Hotel business: Ownership and maintenance of hotels

(3) Other businesses: Real estate business

3. Unallocated operating expenses in the fiscal year ended October 31, 2008 were 2,881 million yen. The factors

contributing to this were expenses related to the administrative department headquarters.

4．Corporate assets included under eliminations and corporate for the fiscal year ended October 31, 2008 were 42,714

million yen. These mainly comprised the management of surplus funds (cash and cash equivalents and securities) at the

parent company and assets related to the Administration Department of headquarters.

5. Long-term pre-paid expenses and their associated amortization amounts are included in depreciation expenses and

capital expenditure.

6. Previously the incomes and expenses of foreign subsidiaries were translated into the yen using the spot exchange rate

on the day that the books are closed. From the current fiscal year, the company has adopted the average exchange rate

during the fiscal year for the translation. In travel business, this change resulted in a 513 million yen increase in net sales

and 25 million yen increase in operating income. In hotel business, net sales fell by 90 million yen and operating income fell

by 8 million yen.


26

Previous Fiscal Year ended October 31, 2007 (millions of yen)

Travel business(1) Hotel

business(2) Other

businesses(3) Total Eliminations &

Corporate Consolidated

I. Net sales and operating income

Net sales

(1) Sales to outside customers

359,916 2,141 26 362,084 ― 362,084

(2) Inter-segment sales / transfers ― 62 ― 62 (62) ―

Total 359,916 2,203 26 362,146 (62) 362,084

Operating expenses 351,168 1,967 0 353,136 2,585 355,722

Operating income 8,748 236 25 9,009 (2,647) 6,362

II. Assets, depreciation and capital expenditure

Assets 50,713 7,200 252 58,167 42,824 100,992

Depreciation 454 187 0 642 630 1,273

Capital expenditure 877 315 ― 1,193 148 1,342

Notes:

1. Business segments are classified according to those used internally by management.

2. The main business of each segment is as follows: (1) Travel business: Travel business and associated businesses

(2) Hotel business: Ownership and maintenance of hotels

(3) Other businesses: Real estate business


contributing to this were expenses related to the administrative department headquarters.

4. Corporate assets included under eliminations and corporate for the fiscal year ended October 31, 2007 were 42,830



5. Long-term pre-paid expenses and their associated amortization amounts are included in depreciation expenses and

capital expenditure.


27

2. Segment Information by Geographical Area Current Fiscal Year ended October 31, 2008 (millions of yen)

Japan

America Asia /

Oceania Europe Total Eliminations & Corporate Consolidated

I. Net sales

(1) Sales to outside customers 345,483 7,160 9,742 5,997 368,384 ― 368,384

(2) Inter-segment sales / transfers 45 15,523 12,714 3,998 32,282 (32,282) ―

Total 345,528 22,684 22,457 9,996 400,667 (32,282) 368,384

II. Operating expenses 338,518 22,207 21,336 9,820 391,883 (29,401) 362,482

Operating income 7,010 476 1,120 176 8,784 (2,881) 5,902

Assets 43,292 4,109 13,927 3,027 64,356 39,389 103,746

Notes:

1. The breakdown of regions other than Japan is as follows:

(1) America: U.S.A., Canada, Mexico, the Bahamas, Guam, Saipan

(2) Asia/Oceania: Hong Kong, South Korea, Singapore, Indonesia, Thailand, Australia, Fiji

(3) Europe: The United Kingdom, Germany, France, Italy, Spain


contributing to this were expenses related to the administration department headquarters.

3. Corporate assets included under eliminations and total company for the fiscal year ended October 31, 2008 were 42,714



6. Previously the incomes and expenses of foreign subsidiaries were translated into the yen using the spot exchange rate

on the day that the books are closed. From the current fiscal year, the company has adopted the average exchange rate

during the fiscal year for the translation. In America, this change resulted in a 222 million yen increase in net sales and 4

million yen increase in operating income. In Asia and Oceania, net sales rose by 312 million yen and operating income

increased by 16 million yen. In Europe, net sales fell by 109 million yen and operating income fell by 4 million yen.


28

Previous Fiscal Year ended October 31, 2007 (millions of yen)

Japan

America Asia /

Oceania Europe Total Eliminations & Corporate Consolidated

I. Net sales

(1) Sales to outside customers 338,236 8,157 9,788 5,902 362,084 ― 362,084

(2) Inter-segment sales / transfers 20 15,213 12,693 4,194 32,121 (32,121) ―

Total 338,256 23,370 22,481 10,096 394,205 (32,121) 362,084

II. Operating expenses 330,823 22,774 21,700 9,898 385,195 (29,473) 355,722

Operating income 7,433 596 781 198 9,009 (2,647) 6,362

Assets 40,023 5,068 13,124 3,011 61,228 39,763 100,992

Notes:

1. The breakdown of regions other than Japan is as follows:

(1) America: U.S.A., Canada, Mexico, the Bahamas, Guam, Saipan

(2) Asia/Oceania: Hong Kong, South Korea, Singapore, Indonesia, Thailand, Australia, Fiji

(3) Europe: The United Kingdom, Germany, France, Italy, Spain


contributing to this were expenses related to the administration department headquarters.

3. Corporate assets included under eliminations and total company for the fiscal year ended October 31, 2007 were 42,830




29

V. Non-consolidated Financial Statements 1. Non-consolidated Balance Sheets

Millions of yen As of

October 31, 2008 As of

% October 31, 2007 % ASSETS Current assets

Cash and deposits ..................................................... 32,092 29,632 Notes & accounts receivable...................................... 5,083 3,434 Accrued sales receivable ........................................... 8,035 10,452 Marketable securities ................................................. 1,038 3,025 Travel deposits........................................................... 9,574 7,756 Pre-paid expenses ..................................................... 670 666 Deferred tax assets .................................................... 5,663 2,162 Accrued income ......................................................... 207 60 Short-term loans receivable ....................................... 26 62 Short-term loans to affiliates ...................................... 474 274 Accrued revenue........................................................ 1,370 1,265 Other current assets................................................... 1,345 1,052 Allowance for doubtful accounts ................................ (61) (38)

Total current assets...................................................... 65,520 72.2 59,805 67.1 Fixed assets Tangible fixed assets

Buildings and structures............................................. 1,755 1,550 Accumulated depreciation ...................................... (819) (722) Vehicles ..................................................................... 10 10 Accumulated depreciation ...................................... (9) (8) Equipment and fittings................................................ 1,746 1,671 Accumulated depreciation ...................................... (1,223) (1,129) Land........................................................................... 235 235

Total tangible fixed assets............................................ 1,697 1.9 1,607 1.8 Intangible fixed assets Goodwill ......................................................... 5 8 Trade mark rights........................................... 21 18 Telephone subscription rights ........................ 79 79 Telephone facility access rights ..................... 1 1 Software......................................................... 1,007 896 Other intangible fixed assets.......................... 28 13

Total intangible fixed assets ............................ 1,144 1.3 1,017 1.1


30

Millions of yen

As of October 31, 2008 % As of October 31, 2007 %

Investments and other assets

Investments in securities ............................... 4,922 8,431 Shares in affiliates ......................................... 10,718 11,167 Investments in affiliates ................................. 313 317 Long-term loans receivable ........................... 295 374 Long-term loans to affiliates .......................... 1,295 1,259 Long-term prepaid expenses......................... 9 15 Deferred tax assets ....................................... 901 907 Guarantee deposits ....................................... 4,011 3,782 Other investments and other assets .............. 6 506 Allowance for doubtful accounts.................... (72) (74)

Total investments and other assets ................. 22,400 24.7 26,687 30.0 Total fixed assets............................................. 25,241 27.8 29,312 32.9 Total Assets ................................................... 90,762 100.0 89,117 100.0

LIABILITIES Current liabilities

Notes & accounts payable................................. 14,241 14,089 Accrued payable................................................ 934 820 Accrued expenses............................................. 1,171 1,061 Accrued income taxes ....................................... — 881 Accrued consumption taxes .............................. 255 384 Pre-trip deposits ................................................ 23,124 22,207 Insurance deposits ............................................ 328 349 Gift certificate .................................................... 776 634 Accrued bonuses............................................... 1,909 1,682 Accrued bonuses for directors........................... 26 22 Short-term accrued interest for travel funds ...... 3 1 Reserve for loss on liquidation of affiliates….… 600 — Forward exchange contracts ............................. 7,750 1,995 Other current liabilities....................................... 720 477

Total current liabilities .......................................... 51,842 57.1 44,608 50.1 Long-term liabilities

Accrued employees’ retirement benefits............ 1,262 1,121 Accrued directors’ and statutory auditors’

retirement benefits ......................................... 394 369

Long-term accrued interest for travel funds ....... 2 1 Guarantee deposits ........................................... 40 40 Other long-term liabilities................................... 63 97

Total long-term liabilities ...................................... 1,763 2.0 1,631 1.8 Total liabilities.................................................... 53,605 59.1 46,239 51.9


31

Millions of yen

As of October 31, 2008 % As of October 31, 2007 %

NET ASSETS Shareholders’ Equity

Common stock................................................. 6,882 7.6 6,882 7.7 Capital surplus................................................. 7,782 8.6 7,782 8.7

Capital reserve............................................ 7,778 7,778

Other capital surplus ................................... 3 3

Retained earnings............................................ 29,773 32.8 31,366 35.2

Earned reserve ........................................... 246 246

Contingent reserve

Other reserve .......................................... 27,565 25,565

Retained earnings brought forward ......... 1,962 5,555

Treasury stock ................................................. (2,519) (2.8) (1,563) (1.7)

Total shareholders’ equity.................................. 41,919 46.2 44,467 49.9 Appraisal and translation differences

Unrealized holding losses on securities........ (180) (0.2) (407) (0.5)

Deferred gain/loss on hedges....................... (4,582) (5.1) (1,183) (1.3)

Total appraisal and translation differences ........ (4,763) (5.3) (1,590) (1.8)

Total net assets.................................................. 37,156 40.9 42,877 48.1

Total Liabilities and Net Assets........................ 90,762 100.0 89,117 100.0


32

2. Non-consolidated Statements of Income Millions of yen

FY ended October 31, 2008 FY ended

October 31, 2007

Net sales................................................................................. 325,428 100.0 317,546 100.0 Overseas travel ................................................................. 306,029 299,272 Domestic travel.................................................................. 16,890 15,425 Other ................................................................................. 2,508 2,848

Cost of sales........................................................................... 284,563 87.4 277,537 87.4 Overseas travel ................................................................. 269,464 263,787 Domestic travel.................................................................. 15,072 13,746 Other ................................................................................. 26 4

Gross profit ............................................................................. 40,865 12.6 40,009 12.6 Selling, general and administrative expenses ........................ 36,695 11.3 35,299 11.1

Operating income ....................................................... 4,169 1.3 4,709 1.5 Non-operating income

Interest income..................................................................... 521 290 Dividend income ................................................................... 277 355 Commission income ............................................................. 24 25 Foreign exchange gains ....................................................... － 47 Others................................................................................... 93 32

Total non-operating income............................................. 916 0.3 751 0.2 Non-operating expenses

Foreign exchange losses...................................................... 893 － Addition to allowance for bad debt ....................................... 5 44 Loss on sale of securities ..................................................... 15 － Loss of investments in partnership ....................................... 12 49 Others................................................................................... 28 0

Total non-operating expenses .......................................... 955 0.3 94 0.0 Ordinary income ....................................................... 4,130 1.3 5,366 1.7

Extraordinary gains Gain on sale of investment securities ................................... 33 47 Refunded foreign tax ............................................................ 12 179

Total extraordinary gains ................................................. 45 0.0 227 0.0 Extraordinary losses

Loss on sale of fixed assets ................................................. 52 51 Appraisal loss on investment securities................................ 2,933 － Loss on valuation of shares of affiliates................................ 1,499 － Provision of reserve for loss on liquidation of affiliates ......... 600 － Valuation losses on investments .......................................... － 10 Accident-related costs .......................................................... 6 12 System-use contract cancellation......................................... － 4 Others................................................................................... 576 －

Total extraordinary losses................................................ 5,669 1.8 78 0.0 Net income before income taxes ............................................ (1,493) (0.5) 5,515 1.7 Income taxes - current................................................................. 754 2,282 Income taxes - deferred.......................................................... (1,316) 53

Subtotal ..............................................................

consolidated financial results - his · 2018. 10. 3. · consolidated financial results for the...

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